About Me
- Ben Armistead
- Nashville, Tennessee, United States
- You can reach me at ben@gtu-ins.com. Comments are welcome.
Wednesday
CSA Changes and The Fast Act- What it Means and How to Proceed Going Forward Respects Carrier Risk Management
As you are aware, change is an operational prerequisite of both the insurance sector and the logistics industry. It is what these industries have in common. These changes require both an understanding of that change and what it means to risk management considerations.
The change we are discussing today is the latest Federal Highway bill (FAST Act 2015) and the its ramifications on CSA.
The result of the bill is that the Federal Motor Carrier Safety Administration (FMCSA) has been required to stop sharing CSA scores with the general public.
Our friends and partners at SaferWatch have noted the following:
"CSA Scores - The CSA BASICs system is merely a scoring system based on evaluation of data such as inspection and violation history. According to the FAST Act, the removal of CSA scores from public view is very likely temporary. Once the FMCSA meets conditions required by the FAST Act, they may make it publicly available again.
Inspection and Violation History Remains Public - The underlying inspection and violation history that is used in calculating the CSA scores will remain public. This data continues to be disseminated en mass and the FMCSA SMS website message indicates they are working as quickly as possible to restore these public values on the SMS website. Removal of the CSA scores does not necessarily alleviate the need for you to evaluate the inspection and violation history in your standard for hiring motor carriers.
Hiring Standard Changes - It may be very important to consider inspections and violation history in your carrier hiring standard. Simply put, how will you defend your carrier selection standard if you hire a carrier that has a public history of poor inspections and serious violations?
SaferWatch provides several solutions to meet the requirements of the wide carrier selection criteria standards of its customers:
· CSA Equivalent Scores* - SaferWatch has developed a CSA Equivalent score so you don’t have to make any changes in your carrier hiring standard. This CSA Equivalent is similar to the CSA scoring mechanism used to evaluate inspection and violation history. While there have been issues with the CSA scores, one thing they did provide was a “guiding light” by the FMCSA through the inspection and violation history. Using a CSA Equivalent may lower your risk exposure compared to developing a standard around the public inspection and violation history
· Inspection and Violation History - SaferWatch will be providing the carrier inspection and violation history to the carrier profiles in the next week. If you prefer, you can use this data to make carrier hiring decisions rather than using the CSA BASICs scoring system.
Are CSA scores still something to be concerned about?
Yes. CSA scores have been used by the legal community as evidence for the plaintiff and the defense in negligent hiring lawsuits and a legal precedence has been set. With CSA scores temporarily hidden, will the legal community start using the underlying public inspection and violation data that is used to formulate the CSA score? If a carrier you hired ends up causing a fatality due to bad brakes, and it turns out the carrier had one or more vehicle maintenance violations in the past few months, how will this public information be used against you?
SaferWatch provides you with comprehensive carrier data and advanced tools needed to help you establish your carrier hiring standards. Our Carrier Risk Management experts are here to help you navigate the many facets of the carrier selection process."
You can certainly see why SaferWatch is a great partner for GTU, our agents, and their insureds.
So what does this all mean from an underwriting and risk management perspective going forward until the government redeploys CSA data to the general public?
Here is the bottom line:
The viability of current CSA data and its accuracy respects predicting claims has been called into question. As the data is now pulled from public view, the current data will have to be discounted in the underwriting process. That is not to say it should be disregarded or overlooked. Unfortunately, the current status of having the data pulled from public view gives CSA naysayers the opportunity to state that the data should not have mattered in the first place- nor should it be used in the future. Remember the CSA data will reappear. It is not going away in perpetuity.
While the current data is most certainly not to be viewed as a true measure of accountability, it should be taken into context when looking at other risk characteristics such as DOT Safety Rating, the AM Best rating of the carrier’s insurance, how long the carrier has been in business, etc… So, in the end, CSA data used as part of the overall carrier evaluation is still necessary. For those that still use components of it in the evaluation, they will be judged to have better risk management practices and be a better risk. The SaferWatch solution of using CSA equivalents along with inspection and violation history is clearly the way to go. But it will be a work in progress.
It is also important to look at the data itself- even if it is unavailable today. Carriers with more than 1 Alert comprise less than 4% of all carriers operating in the supply chain. While all carriers do not have CSA scores and as such, those that do are unfairly discriminated against as a result, it does not diffuse the issue that 96% of the carriers do not have this issue.
CSA data being hidden from the general public is not helpful to truck brokers if components of that data are still going to be used in a courtroom to establish broker liability as it relates to negligent hiring, negligent entrustment, and the vicarious liability. Coming up with a Plan B makes good sense.
Recent Truck Broker Case Law
Trying to stay on top of cases involving truck brokers and other logistics operations is a tough daily task. We see submissions with settlement by insurance companies and we see court cases as well.
Our friends at the Central Analysis Bureau are probably the most diligent in keeping transportation insurance underwriters up to speed. While they report on all transportation cases and legal precedents nationwide, I found the following cases involving transportation brokers. So I will highlight the cases and what significance they have going forward.
Your takeaway should be that plaintiff attorneys are far more active in the transportation broker arena and in my view the loss cost is rising. This translates into a greater need for best practices.
Atiapo versus Goree Logistics- The issue here was a precedent changing event. A North Carolina court found a truck broker liable for a carrier’s failure to provide workers compensation coverage for a carrier he hired. The protocol here was that if the truck broker agrees that it will make sure a delivery is properly made by a carrier it hires, then the broker moves from an independent contractor to a general contractor. As a general contractor, the truck broker would be required to maintain workers compensation for the driver of the carrier. What is sad about this case is the Federal Preemption did not apply.
The upshot of this case is clear. Failure to hire carriers that require workers compensation coverage could and does expose the transportation broker to legal liability.
For the actual case summary, see the attached:
Montes versus El Paso- Los Angeles Limousine Service. The issue here was that a California District Court concluded that a plaintiff was entitled to remand their personal injury case against the broker to state court. Specifically the transportation broker could be sued for damages stemming from interstate commerce.
Defense counsel was relying on Federal preemption to shut down this case and it did not happen.
For the actual case summary, see the attached:
Borders versus Behrman- The issue here was that the insurance agent was held liable for lost revenues when the insurance agent told C. H. Robinson, the nation’s largest truck broker, that their insurance coverage had expired- in error. For those of you insurance agent’s involved in trucking companies and insurance filings, this case shows the exposure of what can happen when there is a failure to renew and communicate renewal coverage.
For the actual case summary, see the attached:
Thursday
Truck Broker Liability Coverage Comparisons versus Avalon's New York Marine (CTLP)
We are asked to compare coverages from time-to-time and I offer the normal disclaimer that any review is subjective and,as such, is subject to the actual terms and conditions of the actual policy in place. One of our agent's asked us to compare the TBL product to Avalon's program with New York Marine so I thought I would add this to the blog to help our agents/ their insureds understand it better . This should help irrespective if the other contingent auto carrier is New York Marine or someone else- as the coverage issues are relative to all carriers. And, more importantly, it makes sense to look at the coverage intentions of each carrier and understand their strengths and weaknesses as it related to the following coverage interpretation:
I will tell you that the folks I know at Avalon are highly professional, and they have done a nice job creating a product called the Combined Transit Liability Program ( CTLP). They also include in one package other coverages and there are several bells and whistles in fringe coverages that are not available elsewhere- but I do not find them material. They also offer extremely cheap pricing so they are viewed with some interest by the marketplace. But the buck stops there in my view.
While I certainly view the following interpretation as self-serving, I can tell you that the normal truck broker liability (TBL) product is far superior in offering coverages for truck brokers versus New York Marine's CTLP. Here is why:
I will tell you that the folks I know at Avalon are highly professional, and they have done a nice job creating a product called the Combined Transit Liability Program ( CTLP). They also include in one package other coverages and there are several bells and whistles in fringe coverages that are not available elsewhere- but I do not find them material. They also offer extremely cheap pricing so they are viewed with some interest by the marketplace. But the buck stops there in my view.
While I certainly view the following interpretation as self-serving, I can tell you that the normal truck broker liability (TBL) product is far superior in offering coverages for truck brokers versus New York Marine's CTLP. Here is why:
- CTLP has policy aggregate of $1,000,000 . Most shippers are looking for auto coverage that has no aggregate. TBL usually has no aggregate in the current policy- A huge deficiency especially for truck brokers who have a larger sales volume.
- CTLP policy form is contingent coverage. TBL is primary coverage. Does an insured want to see if another policy pays before the coverage responds in the current policy? The answer is of course not.
- CTLP policy form is geared toward customs brokers. The TBL policy is specific to truck brokers. Not a big deal but there seems to be jargon and ambiguity that is not geared to truck brokers.
- The CTLP policy excludes punitive damages. There have been punitive damages claims against truck brokers. The TBL usually does not exclude punitive damages presently. Obviously a big problem in the CTLP form...
- Defense-I cannot tell whether defense costs are in the limits or excluded altogether based on the declarations pages and the coverage form . It does look like defense is optional. TBL is not optional in the current policy form.
- CTLP will write specified contractual which is better than TBL. We are working on it. That being said, they exclude claims arising out of any agreement to indemnify which is the basis of most contracts so I feel this is a moot issue.
- Pollution is excluded in the CTLP form; it cab ve picked up subject to the terms by the TBL in the current policy.
- CTLP has a 6 month claims timeline for turning in a claim under the CTLP form/ TBL does not have that provision
- Policy form of CTLP excludes certain commodities- a big deal is the broker would have to pay attention not to broker certain commodities. TBL has no such exclusion.
- CTLP policy has a deductible. The current TBL is no deductible. As mentioned the CTLP pricing is better than the TBL pricing, however, that is about it (except for contractual if they really provide the same).
Compliance, Safety, and Accountability Changes and The Carriers- Is It All Fair?
CSA continues to confound all stakeholders involved in the supply chain. There appears to be a change a month. The truth is CSA is unfair. While this is a purely conjectural statement, it should be noted that CSA is attempting to raise the bar on truck road safety- and that is a good thing. The challenge is that its strategy to raise the bar is to establish a better measurement system for looking at roadside inspection data and driver experiences. The reason why it is unfair is that so many truckers are "not rated" and so it penalizes those truckers who are rated- who might be actually worse than those that are not rated. Until ALL carriers are rated we will never know. The other challenge is that the only way a carrier can clean up his score is to get a clean inspection- so they have to try and get inspected when nothing is wrong. Does not seem to make sense, does it? And to add insult to injury, they keep changing things. I have to look at that as good since the system needs improvement. What people need to stop doing is saying that it is irrelevant and any carrier that is approved to operate by DOT is viewed as safe. I can tell you plaintiff's lawyers, trial courts, and the insurance industry- other ancillary stakeholders in the supply chain do not view it that way at all. An insurance underwriter, rightly or wrongly, has established their own benchmarks that they feel their defense attorneys can successfully defend. So keep your eye on CSA, and look at who is doing what. So what changed this time? Our friends at the Central Analysis Bureau said there were the following changes to CSA this past month. They are:
1) The Cargo-Related BASIC is now aligned with the Hazardous Materials (HM) Compliance BASIC.
2) The Vehicle Maintenance BASIC has been strengthened by including cargo and load securement violations that were previously in the Cargo-Related BASIC.
3) CSA now counts intermodal equipment violations found during drivers’ pre-trip inspections.
4) CSA is now trying to align speeding violations to be consistent with current speedometer regulations that require speedometers to be accurate within 5 mph.
5) The Fatigued Driving BASIC is no more. The name has been changed to the Hours-of-Service (HOS) Compliance BASIC to more accurately reflect violations contained within the BASIC.
6) CSA is now aligning the severity weight of paper and electronic logbook violations equally on the SMS for consistency purposes. The change applies to the prior 24 months of data used by the SMS and all SMS data moving forward. Keep your eyes open for CSA changes so you can help your clients. We will be looking at for changes as well. Some folks say change is good. Let's hope so.
1) The Cargo-Related BASIC is now aligned with the Hazardous Materials (HM) Compliance BASIC.
2) The Vehicle Maintenance BASIC has been strengthened by including cargo and load securement violations that were previously in the Cargo-Related BASIC.
3) CSA now counts intermodal equipment violations found during drivers’ pre-trip inspections.
4) CSA is now trying to align speeding violations to be consistent with current speedometer regulations that require speedometers to be accurate within 5 mph.
5) The Fatigued Driving BASIC is no more. The name has been changed to the Hours-of-Service (HOS) Compliance BASIC to more accurately reflect violations contained within the BASIC.
6) CSA is now aligning the severity weight of paper and electronic logbook violations equally on the SMS for consistency purposes. The change applies to the prior 24 months of data used by the SMS and all SMS data moving forward. Keep your eyes open for CSA changes so you can help your clients. We will be looking at for changes as well. Some folks say change is good. Let's hope so.
2012 Big Claim Against a Truck Broker Involving Double Brokered Loads
Showing you the extended tail of transportation claims, a jury awarded $5.1 million against Heyl Logistics on a 1998 claim- a transportation broker and the driver Daniel Clarey. There are a number of things that make this case auspicious and several takeaways.
1) Double Brokered- Heyl brokered the load to Washington Trucking who brokered it to Daniel Clarey- who unbelievably lacked insurance and operating authority. Additionally, Clarey was cited with reckless driving and a DUI.
Takeaway- Look for underwriters of truck broker insurance to require contract language in the broker carrier contract that affirms that they do not allow the carrier to double or rebroker a load. Also look for them to decline immediately any risk that does so.
2) Punitive Damages- The court was sending a clear message of no tolerance and as such assigned $1.68 million directly against Heyl. ( The good news for Heyl is that they later settled for less)
Takeaway- Look for more caution when buying surplus lines casualty coverages that exclude punitive damages- it is clear that brokers have the exposure.
3) Coverage Tail- We have seen a Lloyds policy and other policies that only allow a claim to be turned in within 24 months of the date of loss. Coverage would have been precluded.
Takeaway- watch for carriers that have a claims-made feature.
Look for the marketplace to get more cautious....
1) Double Brokered- Heyl brokered the load to Washington Trucking who brokered it to Daniel Clarey- who unbelievably lacked insurance and operating authority. Additionally, Clarey was cited with reckless driving and a DUI.
Takeaway- Look for underwriters of truck broker insurance to require contract language in the broker carrier contract that affirms that they do not allow the carrier to double or rebroker a load. Also look for them to decline immediately any risk that does so.
2) Punitive Damages- The court was sending a clear message of no tolerance and as such assigned $1.68 million directly against Heyl. ( The good news for Heyl is that they later settled for less)
Takeaway- Look for more caution when buying surplus lines casualty coverages that exclude punitive damages- it is clear that brokers have the exposure.
3) Coverage Tail- We have seen a Lloyds policy and other policies that only allow a claim to be turned in within 24 months of the date of loss. Coverage would have been precluded.
Takeaway- watch for carriers that have a claims-made feature.
Look for the marketplace to get more cautious....
Truck Brokers and Truck Broker Insurance 101
I continue to get calls from good folks that simply do not understand what truck brokers are and what insurance they need. While I have addressed this in a more simplistic basis in the past, I thought it made sense to revisit the world of truck brokers. So here you go:
According to industry sources, there are over 16,000 truck brokers. A truck broker is in essence a freight intermediary- linking the shipper to the carrier. Unlike a trucker, they own no assets involved in the transit of freight. What most people do not realize is how many different parties can be involved in the overall transportation of freight- otherwise known as the supply chain.
To illustrate how convoluted the supply chain can get with regard to freight in the supply chain, let's look at an example. Transit of freight could have an ocean liner dropping a container to a third party logistics operation (3PL)-who has it transported by rail to a yard- whereupon a freight forwarder takes it on- and finds another broker -who has the carrier relationships- who in turn finds the trucker to get the freight to its final destination.
Where insurance kicks in is relative to understanding the liability during transit. The legal liability that is assumed arises from the bill of lading or tariff along with the contractual liability and legal precedents of tort liability. Today, the insurance on truck brokers is a fledgling work in progress. Many folks confuse a truck broker with a freight forwarder (a freight forwarder is licensed as a motor carrier while a truck broker is not). There are many more truck brokers going into business today than freight forwarders and 3PLs due to the more economical nature of operating as truck broker with just a phone and software- and not assuming a greater legal liability that freight forwarders and 3PLs have and do assume. From a casualty perspective the auto is construed to have the largest exposure while the GL is mostly construed to be a premises exposure- if that. I have never seen a GL loss on a truck broker and candidly have only seen 1 loss for GL for a trucker in my over 25 years in the business. The reason for this is that an auto liability policy ( the motor carrier form) covers the ownership, maintenance and use so it picks up most exposures. Other casualty losses involve professional liability which covers financial loss due to errors and omissions- a growing product.
The cargo insurance demand is probably the second most important insurance and is written on a contingent cargo basis. What is especially odd about this is that statutorially the truck broker has, as an intermediary, no insurable interest in the cargo. However, does that mean the truck broker is not legally responsible for cargo loss anyway? The answer is no in that they sign agreements with shippers that require insurance, require full indemnification, and require waiver of subrogation. While the casualty insurance previously mentioned offers the biggest source of balance sheet protection, the most important insurance to a truck broker is contingent cargo- as the truck broker needs to protect his end client- the shipper. Without that protection, usually a truck broker is unable to obtain freight from that shipper.
Truck brokers come in many shapes and sizes and it is important to understand what they are from bottom to top. Currently truck brokers exist on two bases- one as a standalone operation autonomous to any other transportation operation and secondly as an adjunct to a trucker’s operation. (There are also freight forwarders and 3PLs that have brokerage operations but I do not wish to address that here.) With the recession just over and truck utilization at an all-time high, a trucker would rather be in control of a shipper by having a brokerage operation to assist when all their power units are dedicated and already out on the road.
With respect to insurance, the truck broker operating autonomously is a fairly easy operation to underwrite. A truck broker operating in conjunction with a trucker can have separate authority or have authority in conjunction with a trucker’s existing common and/or contract carrier status. Most truck liability writers have disdain for operations with brokerage authority as they view it as providing coverage for trip leasing.
From an insurance buyer perspective, truck brokers also come in various shape and sizes. To get their authority from the Federal Motor Carrier Safety Administration, truck brokers have to provide a bond of $75,000. This is a pretty easy process but it means a truck broker has to pay to play. From there we see five types of insurance prospects:
• New Truck Broker Operations- no sophistication- only buying insurance for what the shipper requires. Seldom have a broker carrier agreement. Usually only buy contingent cargo although more and more are being required to have contingent auto, contingent cargo, and general liability
• Small truck brokerage operation in conjunction with a trucker- minimal revenue- only buying contingent cargo as well but like new operations are being requested to have coverage for the contingent auto, the contingent cargo and the GL.
• New Operations having experience and sophistication- employing best practices- want all coverages and expect high growth- have both an existing shipper and carrier network- work with industry standard broker carrier agreements.
• Seasoned Operations but no carrier agreement and no best practices- these are “country “ operations that do not have broker carrier agreements or industry best practices but have operated well within their environment. They are irritated as their shipping customers have been demanding insurance and end up buying contingent auto, contingent cargo, and general liability.
• Seasoned operations having experience and sophistication –employing best practices- want all coverages and best coverage and expect growth- employ great broker carrier contracts
The broker carrier contract is a fairly big deal when underwriting truck brokers and a constant work in progress. When we underwrite the contingent cargo, we look for essentially 3 things in the broker carrier contract: indemnification, insurance limits mandated, and that the carrier is responsible for all losses. From a broker liability context, there is a need to have the broker carrier contract coincide with operational best practices and insurance underwriting requirements. Additionally, in any case where the broker can remove liability by requiring the carrier to name the broker as an additional insurable, our desire for writing coverage increases (note most trucking insurance companies do not want to name brokers as additional insureds but we see that changing.)
From an insurance distribution perspective, most insurance agents and MGA’s have no clue about truck brokers and the insurances needed. While some trucking agents are getting better and better, they do not write enough of it to show any proficiency. GTU is able to show proficiency with a daily understanding of the business and how it is evolving.
Insurance Coverage written on truck brokers from greater to lesser are as follows:
• Surety (previously discussed)
• Contingent Cargo
• Contingent Auto or Broker Liability- the fastest growing demand is for this product
• General Liability- no one provides contractual and that is what they are looking for
• E & O- greater interest is in this product- a really necessary product
• Property- primarily limited contents
• XS- more and more are asking for higher limits
Note there is vast interest in Cargo Identity Theft which we provide on a sublimit basis to some of the contingent cargo policies we write.
I hope this helps you have a better comfort of what truck brokers are, what insurance they need, and information that help you be more relevant/provide a value added to your client- the truck broker.
According to industry sources, there are over 16,000 truck brokers. A truck broker is in essence a freight intermediary- linking the shipper to the carrier. Unlike a trucker, they own no assets involved in the transit of freight. What most people do not realize is how many different parties can be involved in the overall transportation of freight- otherwise known as the supply chain.
To illustrate how convoluted the supply chain can get with regard to freight in the supply chain, let's look at an example. Transit of freight could have an ocean liner dropping a container to a third party logistics operation (3PL)-who has it transported by rail to a yard- whereupon a freight forwarder takes it on- and finds another broker -who has the carrier relationships- who in turn finds the trucker to get the freight to its final destination.
Where insurance kicks in is relative to understanding the liability during transit. The legal liability that is assumed arises from the bill of lading or tariff along with the contractual liability and legal precedents of tort liability. Today, the insurance on truck brokers is a fledgling work in progress. Many folks confuse a truck broker with a freight forwarder (a freight forwarder is licensed as a motor carrier while a truck broker is not). There are many more truck brokers going into business today than freight forwarders and 3PLs due to the more economical nature of operating as truck broker with just a phone and software- and not assuming a greater legal liability that freight forwarders and 3PLs have and do assume. From a casualty perspective the auto is construed to have the largest exposure while the GL is mostly construed to be a premises exposure- if that. I have never seen a GL loss on a truck broker and candidly have only seen 1 loss for GL for a trucker in my over 25 years in the business. The reason for this is that an auto liability policy ( the motor carrier form) covers the ownership, maintenance and use so it picks up most exposures. Other casualty losses involve professional liability which covers financial loss due to errors and omissions- a growing product.
The cargo insurance demand is probably the second most important insurance and is written on a contingent cargo basis. What is especially odd about this is that statutorially the truck broker has, as an intermediary, no insurable interest in the cargo. However, does that mean the truck broker is not legally responsible for cargo loss anyway? The answer is no in that they sign agreements with shippers that require insurance, require full indemnification, and require waiver of subrogation. While the casualty insurance previously mentioned offers the biggest source of balance sheet protection, the most important insurance to a truck broker is contingent cargo- as the truck broker needs to protect his end client- the shipper. Without that protection, usually a truck broker is unable to obtain freight from that shipper.
Truck brokers come in many shapes and sizes and it is important to understand what they are from bottom to top. Currently truck brokers exist on two bases- one as a standalone operation autonomous to any other transportation operation and secondly as an adjunct to a trucker’s operation. (There are also freight forwarders and 3PLs that have brokerage operations but I do not wish to address that here.) With the recession just over and truck utilization at an all-time high, a trucker would rather be in control of a shipper by having a brokerage operation to assist when all their power units are dedicated and already out on the road.
With respect to insurance, the truck broker operating autonomously is a fairly easy operation to underwrite. A truck broker operating in conjunction with a trucker can have separate authority or have authority in conjunction with a trucker’s existing common and/or contract carrier status. Most truck liability writers have disdain for operations with brokerage authority as they view it as providing coverage for trip leasing.
From an insurance buyer perspective, truck brokers also come in various shape and sizes. To get their authority from the Federal Motor Carrier Safety Administration, truck brokers have to provide a bond of $75,000. This is a pretty easy process but it means a truck broker has to pay to play. From there we see five types of insurance prospects:
• New Truck Broker Operations- no sophistication- only buying insurance for what the shipper requires. Seldom have a broker carrier agreement. Usually only buy contingent cargo although more and more are being required to have contingent auto, contingent cargo, and general liability
• Small truck brokerage operation in conjunction with a trucker- minimal revenue- only buying contingent cargo as well but like new operations are being requested to have coverage for the contingent auto, the contingent cargo and the GL.
• New Operations having experience and sophistication- employing best practices- want all coverages and expect high growth- have both an existing shipper and carrier network- work with industry standard broker carrier agreements.
• Seasoned Operations but no carrier agreement and no best practices- these are “country “ operations that do not have broker carrier agreements or industry best practices but have operated well within their environment. They are irritated as their shipping customers have been demanding insurance and end up buying contingent auto, contingent cargo, and general liability.
• Seasoned operations having experience and sophistication –employing best practices- want all coverages and best coverage and expect growth- employ great broker carrier contracts
The broker carrier contract is a fairly big deal when underwriting truck brokers and a constant work in progress. When we underwrite the contingent cargo, we look for essentially 3 things in the broker carrier contract: indemnification, insurance limits mandated, and that the carrier is responsible for all losses. From a broker liability context, there is a need to have the broker carrier contract coincide with operational best practices and insurance underwriting requirements. Additionally, in any case where the broker can remove liability by requiring the carrier to name the broker as an additional insurable, our desire for writing coverage increases (note most trucking insurance companies do not want to name brokers as additional insureds but we see that changing.)
From an insurance distribution perspective, most insurance agents and MGA’s have no clue about truck brokers and the insurances needed. While some trucking agents are getting better and better, they do not write enough of it to show any proficiency. GTU is able to show proficiency with a daily understanding of the business and how it is evolving.
Insurance Coverage written on truck brokers from greater to lesser are as follows:
• Surety (previously discussed)
• Contingent Cargo
• Contingent Auto or Broker Liability- the fastest growing demand is for this product
• General Liability- no one provides contractual and that is what they are looking for
• E & O- greater interest is in this product- a really necessary product
• Property- primarily limited contents
• XS- more and more are asking for higher limits
Note there is vast interest in Cargo Identity Theft which we provide on a sublimit basis to some of the contingent cargo policies we write.
I hope this helps you have a better comfort of what truck brokers are, what insurance they need, and information that help you be more relevant/provide a value added to your client- the truck broker.
Frequently Asked Questions
Revenue - the rating basis for most contingent cargo and truck broker liability policies is revenue.
Q- What revenue do they actually use to determine the revenue? Is it the gross or the net?
A- Like trucking, it is always on a gross basis.
Q- Why should the bill of lading never be in the name of the broker?
A- The insured asserts himself as an independent contractor and merely a facilitator of freight that assumes no legal liability. Since the bill of lading sets forth the legal liability during transit, it is very hard for a broker to maintain that they were an independent contractor, and thereby absolved from any liability when they are listed as the carrier for hire on the bill of lading. Then there is the representation issue. The FMCSA says the carrier shall issue the bill of lading. That does not mean might, ought to, or that the shipper should put the broker’s name on the bill of lading because he does not know who the carriers name is. Check out federal carrier compliance regulation 49 U.S.C. §80101. If the insured represents himself as the carrier for hire, you can bet it will be very hard to defend in a court of law.
Q- Why is double brokering a load bad?
A- Double Brokering lends itself to a lack of control in the supply chain. Part of our underwriting process is that we base our premiums and risk acceptability on an insured’s operations and carrier selection. When cargo is double brokered, neither we nor the broker have any idea with respect to the quality of the carrier, whether there is a written agreement in place, if the broker has insurance, if the carrier has adequate or comprehensive insurance, whether the carrier is upper tier by FMCSA standards, whether there is a unfavorable previous loss history, how long the other broker has known or done business with the other carrier, to name a few of many concerns… Not all double broker situations ( sometimes called co-broker) situations are bad. The broker may be very professional and have a tip-top operation and his own insurance. Double brokering situations exist. Insurance companies don’t like it and some cases it can void coverage.
Is Hijacking terrorism? - While it could be, hijacking would be considered theft in most policies and covered.
Are Illegal Acts Covered? - while all cargo and contingent cargo policies are different, we do not see coverage either on a primary cargo or a contingent cargo basis for illegal acts
Q- Are double brokered loads covered with Hanover?
A- Hanover's intention is to cover most cases where a load would be double brokered unknowingly by the subcontractor originally intended to handle the shipment. Could there be caveats where a double brokered load is not covered? The answer is yes. If our insured brokers a load to a trucker that he/she has a broker contract with and the BOL/contract make them legally liable for the load and the load is re-brokered, then there is coverage. I do see other contingent cargo carriers deny losses if the carrier who was intended to haul the load never actually hauled the load- a very big problem. An example where there would not be coverage would be if the insured re-brokers a load to another truck broker who in turn has a trucker that has the BOL in the name of an unknown, non-contracted party. Then Hanover claims would have a problem. While I believe Hanover's coverage is the industry's broadest, I do not think other contingent cargo insurance carriers would handle this situation in a dissimilar fashion. What we see in the industry is that even companies like CH Robinson, the nation's largest truck broker,are in the rebrokering business. You can bet they think they have the "umbrella" of contingent cargo coverage and do not.
Truck Broker Liability and Contingent Auto Liability
Q- Does there need to be a separate entity for the trucking operation versus truck brokerage Operation?
A- The hardest part about underwriting brokerage operations in the same name as the trucking operation with their common and/or contract authority is the stacking of limits issue. One of the challenges is if the brokerage side is integrating the trucking operation into the equation. Typically there is an owned vehicle exclusion ( as owned vehicles are covered in the primary auto) so if the insured is spotting his own trailers in his brokerage operation, he may be thinking he is covered by his brokerage casualty policies- when in fact he is most probably only covered by his primary auto policies.
Just another reason to have the brokerage operation in another entity - which the commercial auto underwriters want anyway.....
Q- Does the truck broker liability cover losses where there is no written contract between the broker and the carrier?
A- No, a written agreement is required. While that may sound onerous, in my view it is fair as it establishes the basis for legal liability in the supply chain between a trucker and the truck broker. Food for thought...
Q- Is a written agreement always required for TBL coverage? A- Yes. Here's why: The fact of the matter is that all carriers both large and small do get in at-fault accidents and our broker insured can be exposed as co-defendants, which increases LAE, inclusive of adjustment and investigative expense and legal defense costs. Under CSA, there are big carriers that are deficient in 2-3 BASICs. So they are not immune from greater scrutiny and liability. Markel views it as imprudent to enter into these sorts of transactions without a written agreement. There’s a lot more to it other than just protecting the broker from liability.
Q-Is there a deductible for Contingent Auto and Truck Broker Liability?
A- No, not at this time. For larger accounts, there is an SIR program starting at $50,000
General Liability
Q- Why is General Liability even needed for a truck broker?
A- Trucking insurance does not mirror truck brokerage insurance in that the former involves the utilization of physical assets and the latter is non-asset based. Truckers buy Auto Liability, Physical Damage, Motor Truck Cargo, GL, Property and WC. Truck Brokers buy Truck Broker Liability, Professional Liability, Contingent Cargo, GL, Property and WC. They are also required to have a bond. Shippers often don’t distinguish between truckers and truck brokers. So they require GL in most cases. It’s valid to require same in that both truck broker liability and contingent auto do not provide premises coverage. GL provides that coverage amongst other coverages.
Q- What revenue do they actually use to determine the revenue? Is it the gross or the net?
A- Like trucking, it is always on a gross basis.
Q- Why should the bill of lading never be in the name of the broker?
A- The insured asserts himself as an independent contractor and merely a facilitator of freight that assumes no legal liability. Since the bill of lading sets forth the legal liability during transit, it is very hard for a broker to maintain that they were an independent contractor, and thereby absolved from any liability when they are listed as the carrier for hire on the bill of lading. Then there is the representation issue. The FMCSA says the carrier shall issue the bill of lading. That does not mean might, ought to, or that the shipper should put the broker’s name on the bill of lading because he does not know who the carriers name is. Check out federal carrier compliance regulation 49 U.S.C. §80101. If the insured represents himself as the carrier for hire, you can bet it will be very hard to defend in a court of law.
Q- Why is double brokering a load bad?
A- Double Brokering lends itself to a lack of control in the supply chain. Part of our underwriting process is that we base our premiums and risk acceptability on an insured’s operations and carrier selection. When cargo is double brokered, neither we nor the broker have any idea with respect to the quality of the carrier, whether there is a written agreement in place, if the broker has insurance, if the carrier has adequate or comprehensive insurance, whether the carrier is upper tier by FMCSA standards, whether there is a unfavorable previous loss history, how long the other broker has known or done business with the other carrier, to name a few of many concerns… Not all double broker situations ( sometimes called co-broker) situations are bad. The broker may be very professional and have a tip-top operation and his own insurance. Double brokering situations exist. Insurance companies don’t like it and some cases it can void coverage.
Is Hijacking terrorism? - While it could be, hijacking would be considered theft in most policies and covered.
Are Illegal Acts Covered? - while all cargo and contingent cargo policies are different, we do not see coverage either on a primary cargo or a contingent cargo basis for illegal acts
Q- Are double brokered loads covered with Hanover?
A- Hanover's intention is to cover most cases where a load would be double brokered unknowingly by the subcontractor originally intended to handle the shipment. Could there be caveats where a double brokered load is not covered? The answer is yes. If our insured brokers a load to a trucker that he/she has a broker contract with and the BOL/contract make them legally liable for the load and the load is re-brokered, then there is coverage. I do see other contingent cargo carriers deny losses if the carrier who was intended to haul the load never actually hauled the load- a very big problem. An example where there would not be coverage would be if the insured re-brokers a load to another truck broker who in turn has a trucker that has the BOL in the name of an unknown, non-contracted party. Then Hanover claims would have a problem. While I believe Hanover's coverage is the industry's broadest, I do not think other contingent cargo insurance carriers would handle this situation in a dissimilar fashion. What we see in the industry is that even companies like CH Robinson, the nation's largest truck broker,are in the rebrokering business. You can bet they think they have the "umbrella" of contingent cargo coverage and do not.
Truck Broker Liability and Contingent Auto Liability
Q- Does there need to be a separate entity for the trucking operation versus truck brokerage Operation?
A- The hardest part about underwriting brokerage operations in the same name as the trucking operation with their common and/or contract authority is the stacking of limits issue. One of the challenges is if the brokerage side is integrating the trucking operation into the equation. Typically there is an owned vehicle exclusion ( as owned vehicles are covered in the primary auto) so if the insured is spotting his own trailers in his brokerage operation, he may be thinking he is covered by his brokerage casualty policies- when in fact he is most probably only covered by his primary auto policies.
Just another reason to have the brokerage operation in another entity - which the commercial auto underwriters want anyway.....
Q- Does the truck broker liability cover losses where there is no written contract between the broker and the carrier?
A- No, a written agreement is required. While that may sound onerous, in my view it is fair as it establishes the basis for legal liability in the supply chain between a trucker and the truck broker. Food for thought...
Q- Is a written agreement always required for TBL coverage? A- Yes. Here's why: The fact of the matter is that all carriers both large and small do get in at-fault accidents and our broker insured can be exposed as co-defendants, which increases LAE, inclusive of adjustment and investigative expense and legal defense costs. Under CSA, there are big carriers that are deficient in 2-3 BASICs. So they are not immune from greater scrutiny and liability. Markel views it as imprudent to enter into these sorts of transactions without a written agreement. There’s a lot more to it other than just protecting the broker from liability.
Q-Is there a deductible for Contingent Auto and Truck Broker Liability?
A- No, not at this time. For larger accounts, there is an SIR program starting at $50,000
General Liability
Q- Why is General Liability even needed for a truck broker?
A- Trucking insurance does not mirror truck brokerage insurance in that the former involves the utilization of physical assets and the latter is non-asset based. Truckers buy Auto Liability, Physical Damage, Motor Truck Cargo, GL, Property and WC. Truck Brokers buy Truck Broker Liability, Professional Liability, Contingent Cargo, GL, Property and WC. They are also required to have a bond. Shippers often don’t distinguish between truckers and truck brokers. So they require GL in most cases. It’s valid to require same in that both truck broker liability and contingent auto do not provide premises coverage. GL provides that coverage amongst other coverages.
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